Investment advisers are facing a further £28m in Financial Services Compensation Scheme levies due to the collapse of Pritchard Stockbrokers and Worldspreads, with more claims expected relating to MF Global, Arch cru and Rockingham.
In its Outlook newsletter, published today, the FSCS has forecast a £25m interim levy on the investment intermediation class for 2012/13 due to higher than estimated compensation costs relating to Pritchard Stockbrokers and spreadbetting firm Worldspreads.
Advisers within the life and pensions intermediation class are not facing additional interim levies.
The forecasted £25m interim levy on investment advisers is not expected to trigger the fund manager cross subsidy, which kicks in once adviser claims breach the annual £100m limit. The FSCS has so far levied £66m on investment advisers this year, leaving £34m in claims before the limit is reached.
The FSCS expects to pay out £16m in 2012/13 in relation to Pritchard Stockbrokers, and £17m in relation to Worldspreads. The compensation scheme has already paid out £20.6m to claimants in failed investment brokerage MF Global and expects to pay another £5m in 2012/13.
The FSCS is also handling claims received against advisers about recommendations to invest in the Arch cru funds, which were suspended in March 2009. It has received 1,800 claims against 60 different IFAs to date who advised on Arch cru. Decisions on 350 claims have been made so far, with £5m in compensation paid. The FSCS says it expects more Arch cru claims this year and next year.
Claims against Rockingham Independent, which was declared in default last month, are also being considered by the FSCS. It is still unclear whether Rockingham is legally liable for losses incurred by clients who invested in ARM bonds, which underpinned Rockingham’s Rita product but were issued from Luxemburg without the appropriate licence. The FSCS does not know at this stage whether it will be able to accept claims by Rockingham clients who invested in ARM.
In addition to the £25m interim levy, investment advisers are facing a further £3m in FSCS levies due to the resubmission of tariff data on which levies were based for 2010. The FSCS allowed firms to resubmit their tariff data after inconsistencies emerged about the way firms were reporting income.
As a result of resubmissions the FSCS has calculated that a total of £71m was overpaid by firms, which means this amount needs to be refunded to those who overpaid and redistributed to the industry.
Fund managers face a redistribution levy of £33m while investment advisers face a redistribution of levy £3m.
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